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Women and the ‘Fiscal Cliff’

By Elyse Shaw

News of the impending ‘fiscal cliff’ and attempts to broker a deal to keep us from ‘going over’ has dominated the media. Why is the fiscal cliff important to women? The ‘fiscal cliff’ is the name that was given to the end of 2012, when five important items in legislation will all expire at the same time. While there are numerous components to these changes, there are many ways they adversely affect women and those who are most vulnerable in our society.

First, the Bush Tax Cuts are set to expire on December 31, 2012, affecting everyone in the United States. These tax changes include the Earned Income Tax Credit and child credit expansions for low-income families, which helped to lift 8.7 million people out of poverty in 2011. If these cuts expire, the middle and working classes will be disproportionately affected, making it more difficult for individuals and families to stay above the poverty line.

Second, temporary expansion of federally funded unemployment insurance benefits will expire at the end of December, which affects the long-term unemployed. Although the recession is officially over, recovery is progressing slowly making unemployment insurance essential to keeping families out of poverty because both women and men who have been looking for work for more than 26 weeks rely on federal unemployment insurance to pay bills and support their families.

Third, the temporary cut in payroll (FICA) taxes for Social Security will expire, which means an increase in FICA taxes of 2 percent of earnings for most workers, increasing the payroll tax level from 4.2 percent to 6.2 percent. This equals a $400 decrease in annual purchasing power to a woman earning $20,000 a year, which will significantly reduces her family’s standard of living. For some, this money equals several weeks of groceries, a couple of car repairs, or even half a month’s rent.

Fourth, the sequestration of funds, which consists of automatic across the board cuts in defense (50 percent) and domestic discretionary spending (50 percent), will go into effect January 1, 2013, if Congress does not act. While not affecting Medicare, Medicaid, and Social Security, these cuts total about $55 billion annually for nine years in domestic discretionary spending, including many programs that are essential for women. This includes the Maternal and Child Health block grant, Title X Family Planning, the Child Care and Development block grant that supports Head Start, child support enforcement, and food stamps and other food supplements (such as school breakfast and lunch programs). Of course, this is by no means an inclusive list of essential programs that women and low-income women rely on, but are only a few highlights of some of the essential programs that will be affected by cuts.

Fifth, the debt ceiling must be raised no later than the first few months of 2013. Additionally, the fiscal year 2013 appropriations are active through March 27, 2013, and must be extended to September 30, 2013.

Additionally, while the White House previously stated that any changes to Social Security would not be part of the budget discussion, it has been reported that, in talks with House Speaker John Boehner, the White House offered to include the ‘chained CPI’ in the budget deal. The chained CPI is a change in the standard Current Price Index (CPI) that adjusts for inflation more slowly. It could be used to change the cost-of living adjustment (COLA) formula for Social Security, which would significantly cut benefits for the elderly. While the White House had insisted that using the chained CPI in Social Security would include robust protections for the oldest old (approximately 80 years and older) and those on SSI (which includes the elderly, those with very low incomes, and the disabled), any cuts to Social Security would disproportionately affect women since women earn less than men over their lifetimes—which means they start out with lower benefits—and rely heavily on Social Security benefits for a majority of their income in their elder years. Even a benefits cut of 0.3 percent per year will add up to more than $10,000 for an average earning woman who lives 20 years past the start of drawing on Social Security benefits. Since women live longer than men, this means that more women will be adversely affected by the cuts to Social Security that would be introduced through the chained CPI.

All in all, the fiscal cliff is something to be avoided.

Elyse Shaw is Special Assistant to the President of the Institute for Women’s Policy Research.